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Stocks, Bonds Kick Off November With Declines

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November 01, 2016

By Riva Gold and Akane Otani

U.S. stocks and bonds kicked off November with declines.

Investors have been cautious ahead of a series of upcoming events this month, including the U.S. election, the rest of the third-quarter earnings season and meetings of the Federal Reserve and Bank of England later this week.

Tuesday's declines extended a weak stretch for U.S. stocks. The Dow Jones Industrial Average fell for a third straight month in October, its longest monthly losing streak since 2011. The index declined 1.6% in the three months through Monday and hasn't hit a new high since mid-August.

On Tuesday, the index was down 106 points, or 0.6%, at 18036.

Government bonds sold off, as data showed China's factory activity rising to its highest level in two years. Concerns about the Chinese economy had spooked markets at the start of the year, but investors said recent data has been more encouraging.

The yield on 10-year German debt rose to as high as 0.203%, close to its highest since May, before retreating to 0.176%, according to Tradeweb. U.S. Treasury yields climbed to 1.858% from 1.834% on Monday. Yields move inversely to prices.

"I think higher yields are a mixed blessing for the stock market," said Peter Tuz, president at Chase Investment Counsel. "Clearly if higher yields suggest stronger economic growth and higher earnings growth, that's not necessarily bad...as long as yields are not so high that bonds become much of an alternative for equities," he said.

The S&P 500 declined 0.8% and the Nasdaq Composite fell 0.9% -- a day after both indexes closed at their lowest levels since Sept. 14.

The CBOE Volatility Index, which measures investors' expectations for stock swings in the next 30 days, rose 14% to 19.49.

"When we have conversations with clients, there's definitely a bit of hesitation about engaging right now so close to the election," said David Lefkowitz, senior equity strategist at UBS Wealth Management.

Shares of L Brands fell 8.6% after the company said Monday that sales at its Victoria's Secret stores continued to slow down.

Coach rose 1.7% after the company reported that profit climbed in the latest quarter, while Archer Daniels Midland rose 7.7% after the commodities trader and processor's profit topped expectations.

In commodities,gasoline and diesel prices surged, then retreated slightly, after an explosion in Alabama cut off a major pipeline and raised concerns about fuel shortages. Gasoline futures were recently up 6.4% on the New York Mercantile Exchange. Diesel futures were up 0.7%.

U.S. crude-oil prices were recently down 0.4% at $46.60 a barrel, and energy shares lost 0.6% in the S&P 500.

Asian markets were buoyed by the better-than-expected reading on the Chinese economy. Shares in Hong Kong led gains as the Hang Seng rose 0.9%, while stocks the Shanghai Composite Index advanced 0.7%. Purchasing Managers' Indexes from Nikkei and IHS Markit also pointed to improvements in Japan, South Korea and Taiwan.

Japan's Nikkei Stock Average inched up 0.1%, while the dollar was down 0.6% against the yen at Yen104.292 after the Bank of Japan left its stimulus program unchanged as expected but reduced its inflation forecasts.

In currency markets, the WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, fell 0.3%. The Federal Reserve is widely expected to keep interest rates unchanged Wednesday but leave the door open to a rise in December.

The euro rose 0.8% against the dollar to $1.1056.

Write to Riva Gold at riva.gold@wsj.com and Akane Otani at akane.otani@wsj.com